March 22, 2023 | Supply Chain Strategy
Supply chain management has been through several transitions in the past couple of years, exponentially more than it did in the past decade. Disruptions have been unexpected — from all sorts of reasons such as natural disasters, geo-political disruptions, or labor shortages — leading to delays, cost overruns and lost revenues. In short, business has been tricky and continues to be so, making it critical to plan ahead for possible scenarios.
Business environment however continues to be fast paced and so is demand, making it essential for supply chain organizations to engage in supply chain scenario planning.
Supply chain scenario planning is a process involving preparation for future events that may or may not happen by envisioning multiple scenarios and planning in advance for them in case of an eventuality. Finally, it involves determining the best possible course of action for each scenario.
In other words, scenario planning helps an enterprise identify risks, disruptions and challenges that have the potential to impact its supply chain. The supply chain risks, challenges or disruptions could also arise from transportation delays to supplier bankruptcies to global pandemics. But once the potential scenarios are identified, supply chain organizations should be able to implement the strategies to manage the risks for any scenarios.
Supply chain scenario planning helps enterprises anticipate and analyze potential risks, enabling supply chain organizations to respond to a scenario with proper planning instead of any reactive measure. This advance preparation not only saves time and money but also earns customer goodwill and therefore credibility.
But it’s not just about risk mitigation or keeping ahead of disruptions. Scenario planning enables enterprises to identify areas of improvement as well as new business opportunities. Keeping a broad view of potential opportunities can help companies identify new trends and technologies to venture into emerging markets.
An example of scenario planning would be the approach taken by a global logistics provider. The logistics provider undertook a comprehensive scenario planning initiative to assess all the possible risk scenarios that businesses could face in the decade to come, including technological disruption, geo-political tensions, and localization of supply chains. This advance planning kept the logistics provider in good shape to face disruptions and changing business scenarios at ease by developing strategies to minimize risks and maximize opportunities.
Another example would be that of a global consumer goods company. The company undertook a scenario planning exercise to identify future risks and opportunities that could come from climate change, including desertification and floods. The company developed strategies to mitigate risks and capitalize on opportunities by sourcing raw materials from suppliers in different regions.
Supply chain scenario planning process includes the following key steps:
Supply chain organizations typically involve their key resources to under the potential events that could impact the enterprise’s supply chain. The scenarios could range from natural disasters to geo-political disruptions, economic downturns, labor shortages, or other potential exigency scenarios.
Once a supply chain organization identifies the potential risk scenarios, the potential impact of each scenario is assessed. This assessment involves analyzing the potential impact of disruptions on inventory levels, delivery time, customer satisfaction and cost among others.
Next come strategies and plans based on the potential scenarios and likely impacts. The risk mitigation strategies could involve identifying alternative suppliers, changing inventory strategies, or working on alternative transportation options.
Scenario strategies and plan required regular review and update to suit to changing business requirements and the associated risks. Regular checks ensure timely updates to the scenario plans so that an enterprise is ready for any potential disruption.
Supply chain scenario planning prepares enterprises for potential scenarios, enabling businesses to better manage risks and minimize disruptions when they happen.
Scenario planning brings in informed decisions, those that draw inference potential risks and opportunities.
Knowing when disruptions might strike enables businesses to develop more agile supply chains.
Scenario planning helps in identifying potential opportunities or any existing weakness that can be improved, giving enterprises opportunities to get ahead of the competition.
Supply chain scenario planning is a critical for fast-paced business environments where the predictable could get unpredictable at any moment. Preparing for potential risks and disruptions helps enterprises manage risks, improve decision-making, and provide a competitive advantage over peers. Regularly engaging in scenario planning, including review and update of plans, can help enterprises and supply chains to remain relevant and effective. The right approach and tools can effectively propel businesses toward better preparedness so that they can tackle the unforeseen anytime, anywhere in an uncertain world.